Comparing Term Life and Whole Life Insurance: Which is Right For You?

team waffle icon
Team Waffle
March 7, 2023
Table of Contents

Term life vs Whole life insurance

Oh boy, let's dive into the world of life insurance shall we? Now, let's keep it simple. You've got two options: term and whole life.

Term life insurance is like a rental car - it's cheap and gets the job done for a set period of time. Whole life insurance is more like buying a car outright - it lasts a lifetime and has a fancy little savings component called a "cash value," but it'll cost you a pretty penny.

No matter which one you choose for life insurance coverage,  your loved ones will be able to use the payout (aka the death benefit) to cover all sorts of expenses when you kick the bucket.

Funeral costs, mortgage payments, college tuition, you name it. Just make sure to consider your coverage needs before making a decision before applying to life insurance companies.

What to expect:

1. Term Life Insurance Explained

  • Definition of what term life insurance is  
  • Advantages and disadvantages of choosing a term life policy

2. Whole Life Insurance Explained

  • Definition of what whole life insurance is  
  • Advantages and disadvantages of choosing a whole life policy

3. Comparing Term vs Whole Life Insurance

  • Discussion of the differences between the two types of policies
  • Pros and cons of each type to help readers make an informed decision   

What is term life insurance?

Term life insurance: it's like a temporary love affair. It lasts for a specified period of time instead of your entire life and pays out if things don't work out (aka you kick the bucket).

But if you outlive the term and your coverage ends, your beneficiaries don't get a dime. Don't worry though, your premiums and death benefit will stay the same throughout the term.

What term length should you choose for term life insurance?

Think about what financial obligations you're trying to cover and match the length of your policy to that.

For example, if you're a new parent, a 20-year policy might be a good idea to cover you until your child becomes financially independent.

If you're a recent college grad, a 30-year policy might be a great choice as well to cover most of your life.

Overall, how much life insurance you should get should include your debt, funeral expenses, outstanding loans,  income replacement, along with other factors.

And don't stress about finding the right life insurance policy, most life insurance companies offer term life insurance policies. Just hop online to compare quotes and you'll be all set.

What is whole life insurance?

Whole life insurance: it's like a loving, committed relationship. It lasts an entire lifetime and pays out no matter when you shuffle off this mortal coil.

Plus, it's got a little something extra: a cash value component. A chunk of your premiums go into this account and it grows over time. Once you've saved up enough from this cash value accumulation, you can borrow against it or cash out the whole life policy.

Now, it's a little more complicated than term life insurance, but it's still easier to understand than other permanent life insurance options. Your premium payments stay the same forever and the cash value account grows at a fixed rate.

The death benefit is also guaranteed unless you take out massive loans against the cash value component. And don't worry about repaying those loans, your insurance company will just subtract them from the final death benefits paid to your beneficiaries.

Most whole life insurance policies also come with the added bonus of "participating" policies. This means you might earn dividends based on the company's financial performance. You can use these dividends to boost your policy's cash value or for other fun stuff.

Is term life insurance worth it?

It's the perfect choice if you only want coverage for a set amount of time. Whether you're raising a family or paying off a mortgage, a term policy can help replace your income if you kick the bucket before your obligations are fulfilled.

On a budget?

Term life is the most affordable option, especially if you're young and healthy.

And if you think you might want permanent coverage down the line but can't afford it right now, many term policies can be converted to permanent coverage. Just make sure to check the deadline for conversion on your specific policy.

Not looking to use life insurance as an investment tool? A cheaper term policy lets you save the money you would have spent on a whole life policy and maybe invest it elsewhere.

Is whole life insurance worth it?

It's a commitment for life. So, make sure you can comfortably afford the higher premiums. If you don't make your payments, your policy could lapse.

Looking to leave money for your heirs?

A whole life policy's death benefit can serve as an inheritance. Just make sure to name your beneficiaries on the policy so the payout goes directly to them instead of through your estate.

Got a lifelong dependent, like a child with disabilities? A whole life policy can help fund a trust to provide care for your child after you're gone. Just make sure to consult with an attorney and financial advisor before setting everything up.

Want a policy that builds guaranteed cash value?

Whole life insurance's cash value grows at a rate set by the insurer.

Is whole life or term life insurance more expensive?

Alright, let's compare term vs whole life insurance shall we? As a general rule, term life insurance is much cheaper than whole life.

For example, a 40-year-old woman who doesn't smoke could pay around $52 a month for a 20-year, $1 million term life insurance policy. But if she wanted a whole life insurance policy, she'd be looking at paying $1,000 or more per month.

Why the price difference?

Term life coverage is cheaper because it only pays out if the insured person dies during the policy term.

Whole life insurance, on the other hand, pays out a survivor benefit no matter when the individual passes and also accumulates cash value over time. So, it's a bit pricier.

Which is better: Term life insurance or whole life insurance?

Okay, so you've read about the differences between term vs whole life insurance. Neither one is inherently better than the other, but one might be a better fit for your specific needs.

When deciding which policy to go with, consider the life insurance costs and how much you're willing to spend. Think about your dependents and who you're trying to support. And, of course, make sure you're not missing out on a better option for your investment goals.

In the end, it all comes down to what works best for you and your loved ones.


Should you get both term life and whole life policies?

The type of life insurance you should get depends on what you need from your policy and what your budget is. If you're in your early 20s, a term life policy might be a good fit.

Since many people at this age are renting and might not have much in savings, replacing your income is the main priority. A term life policy can do this without breaking the bank.

As you get older and accumulate more assets, you can add a whole life insurance policy to supplement your term life policy or replace it entirely.

This policy can provide an extra layer of financial support, whether you need emergency funds while you're alive or you want to help out your beneficiaries after you're gone.

You can always review how many life insurance policies you can get as well to inform your overall decision.

Can you withdraw cash from a term or whole life insurance policy?

Did you know that whole life insurance policies have a provision called an extended-term insurance option? If you surrender your policy, you can use the available cash value to buy an equal amount of term life insurance.

This might be a good idea if you can't afford your whole life premiums anymore. Just keep in mind that the new term life insurance policy might not last for the rest of your life.